If I’d invested £5,000 in Rolls-Royce shares 5 years ago, here’s how much I’d have now!

It has been a disappointing few years for the owners Rolls-Royce (LSE:RR.) shares.

Over the past five years, the share price has fallen 65%. Since its peak in December 2013, the stock has fallen 76%.

Ignoring broker fees and stamps, £5,000 invested in January 2018 would now be £1,750.

Flying high?

Rolls-Royce’s core business has suffered greatly from the pandemic.

The majority of revenue is still generated by the Civil Aerospace division. However, this has declined significantly since Covid-19 devastated the airline industry. The company generates revenue based on the number of hours flown by aircraft using the engine.

year	Large engine flight hours (LEFH)
2018	14.3
2019	15.3
2020	6.6
2021	7.4

There is some recovery in 2022. In the four months to the end of October, LEFH was 65% of the hours of 2019. However, the World Economic Forum does not expect air travel to return to pre-pandemic levels until 2024.

Another concern is the decline in the number of deliveries of widebody engines.

year	Machine sales
2018	469
2019	510
2020	264
2021	195

With the life expectancy of a well-maintained engine being 15,000 hours, a reduction in new engine sales will affect revenue for years to come.

With enthusiasm, BoeingThe 787 Dreamliner has now received permission to fly again. Rolls-Royce will be required to deliver the engine again if production of the aircraft resumes.

Also, in November, it was announced that the company’s Defense division had renewed two five-year contracts worth £1.8bn.

Debt level

The decline in the financial performance of the business, which reduced its cash flow by £6.6bn in 2020 and 2021, prompted the directors to start a debt reduction strategy.

The company recently sold its ITP Aero business for £1.6bn, the proceeds of which were used to repay a £2bn UK Export Finance loan.

The current debt profile requires £500 million to be repaid in 2024, £700 million in 2025, and £2.8 billion between 2026 and 2028.

This should give the company enough breathing room to restore some liquidity, and possibly repay some long-standing debt.

A £1.3bn cost reduction program has also been completed.

Furthermore, companies can reduce the impact of cost increases by having inflation-linked pricing in many long-term contracts.

Nuclear

In an effort to diversify away from its core business, the company has recently begun to explore the feasibility of manufacturing small nuclear reactors.

This has the advantage of being built faster than conventional power plants. The aim is to manufacture the modules in a factory, before installing them on site within 500 days.

However, the first reactor will not produce power until 2030.

Too much turbulence for me

Although I am confident that Rolls-Royce is on the road to recovery – free cash flow is expected to be positive in 2023, and the company is profitable once again – I do not want to invest at the moment.

The company has a good reputation for high-quality engineering, but the demand for its products is out of control. I also wonder if the increase in working from home means that business travel will recover.

In addition, the absence of dividends (delayed in 2020) leads me to conclude that there are currently other, more attractive opportunities in FTSE 100.